<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Vanguard Asset Allocation Fund
Vanguard Equity Income Fund
Vanguard Growth and Income Portfolio
Vanguard Preferred Stock Fund
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
Vanguard/Windsor Fund
Vanguard/Windsor II
- - - - - - - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- - - - - - - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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<PAGE> 2
Important News
for Vanguard
Shareholders
proxy
information
VANGUARD ASSET ALLOCATION FUND
VANGUARD EQUITY INCOME FUND
VANGUARD GROWTH AND INCOME PORTFOLIO
VANGUARD PREFERRED STOCK FUND
VANGUARD/WELLESLEY INCOME FUND
VANGUARD/WELLINGTON FUND
VANGUARD/WINDSOR FUND
VANGUARD/WINDSOR II
Your Vanguard Fund will host a Special Meeting of Shareholders on May 1, 1998,
at our headquarters in Malvern, Pennsylvania. The purpose is to vote on some
important proposals affecting the Fund.
The first few pages of this booklet summarize Vanguard's proposals and
explain the proxy process -- including how to cast your votes. Before you vote,
please read the full text of the proxy statement, for a complete understanding
of our proposals.
PROPOSAL 1: REORGANIZATION INTO A DELAWARE BUSINESS TRUST
We want to reorganize your Fund from a Maryland corporation into a Delaware
business trust. (For Preferred Stock Fund, the reorganization is from a
Pennsylvania common law trust into a Delaware business trust.)
WHY? We expect this administrative change TO SAVE MOST FUNDS (AND, ULTIMATELY,
THEIR SHAREHOLDERS) A SUBSTANTIAL AMOUNT OF MONEY IN STATE TAXES EACH YEAR --
$228,000 for Asset Allocation Fund, $122,000 for Equity Income Fund, $129,000
for Growth and Income Portfolio, $537,000 for Wellesley Income Fund, $1,409,000
for Wellington Fund, $1,438,000 for Windsor Fund, and $1,426,000 for Windsor II,
at current Fund levels. The savings realized would reduce each Fund's expenses.
Preferred Stock Fund would not realize tax savings as a result
of the change, but it would benefit from the efficiency of being organized the
same way as all other Vanguard Funds.
KEY POINTS: The reorganization would not change your Fund's investment objective
or policies (except for any changes approved by shareholders under Proposal 2).
Your Fund also would keep the same Directors or Trustees, officers, investment
advisers, and auditors.
Please Vote
Immediately!
You can vote by
mail, telephone,
or our website...
details can
be found on
the enclosed
proxy insert.
(continued on inside front cover)
[LOGO]
<PAGE> 3
PROPOSAL 2: FIVE CHANGES TO INVESTMENT LIMITATIONS
We want to make a number of minor changes to the Vanguard Funds' fundamental
investment limitations. Not all of these changes relate to your Fund, but you
will have the opportunity to vote separately on each change that does apply.
Proposal 2a is the most important of these. It concerns an interfund lending
program that we would like to establish for all Funds. This program would permit
your Fund to borrow money from other Vanguard Funds as needed to make
redemptions while awaiting payment for securities that it has sold. In addition,
your Fund could lend its cash reserves to other Vanguard Funds to meet their
temporary borrowing needs.
WHY: Normally, your Fund has sufficient cash on hand to meet redemption
requests. If not, however, the Fund can either delay paying shareholders for up
to seven days or pay them immediately by taking out a temporary loan. Borrowing
through the interfund lending program could be cheaper and easier for your Fund
than borrowing from a bank. By lending money to other Funds through this
program, your Fund could earn a better rate of interest on its cash reserves
than it might receive from a bank.
KEY POINTS: The interfund lending program would feature a number of safeguards
to make sure it is fair and beneficial to all Vanguard Funds. One especially
important safeguard is this: No Fund could borrow or lend money in the program
unless it would get a more favorable interest rate than a typical bank would
offer.
-- Q&A --
Q. I'm a small investor. Why should I bother to vote?
A. Your vote makes a difference. If numerous shareholders just like you fail to
vote their proxies, your Fund may not receive enough votes to go forward with
its meeting. If this happens, we'll need to mail proxies again -- a costly
proposition for your Fund!
Q. I've owned shares of Vanguard Funds for several years. Why is this the first
notice I've received about a shareholder meeting?
A. Unlike publicly traded companies, most mutual funds do not hold shareholder
meetings every year. Instead, they undertake this expensive process only when
significant issues requiring shareholder approval come up -- such as your Fund's
plan to save on taxes by changing its form of organization. The last time all
Vanguard Funds held shareholder meetings was in 1993.
Q. Who gets to vote?
A. Any person who owned shares of your Fund on the "record date," which was
February 16, 1998, gets to vote -- even if the investor later sold the shares.
Shareholders are entitled to cast one vote for each Fund share owned on the
record date.
(continued on inside back cover)
<PAGE> 4
Q. How can I vote?
A. You can vote in any one of four ways:
o Through the Internet at www.proxyvote.com (or by going to www.vanguard.com
and clicking on "Proxy Voting").
o By telephone, with a toll-free call to the number listed on your proxy
card.
o By mail, with the enclosed ballot.
o In person at the meeting.
We encourage you to vote by Internet or telephone, using the 12-digit "control"
number that appears on your proxy card. These voting methods will save your Fund
a good deal of money (no return-mail postage!). Whichever method you choose,
please take the time to read the full text of our proxy statement before you
vote.
Q. Is it hard to vote by Internet?
A. Not at all! If you have not yet visited Vanguard's website -- at
www.vanguard.com -- this is a great opportunity to check it out. Scan our
website and, when you're ready, click on the "Proxy Voting" link on our homepage
to access www.proxyvote.com (the voting location). Problems? Please call us at
1-800-662-2739.
Q. I plan to vote by mail. How should I sign my proxy card?
A. If you are an individual account owner, please sign exactly as your name
appears on the proxy card. Either owner of a joint account may sign the proxy
card, but the signer's name must exactly match one that appears on the card. You
should sign proxy cards for other types of accounts in a way that indicates your
authority (for instance, "John Brown, Custodian").
<PAGE> 5
VANGUARD ASSET ALLOCATION FUND
VANGUARD EQUITY INCOME FUND
VANGUARD GROWTH AND INCOME PORTFOLIO
VANGUARD PREFERRED STOCK FUND
VANGUARD/WELLESLEY INCOME FUND
VANGUARD/WELLINGTON FUND
VANGUARD/WINDSOR FUND
VANGUARD/WINDSOR II
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Your Vanguard Fund will host a Special Meeting of Shareholders on FRIDAY,
MAY 1, 1998, AT 9:30 A.M., EASTERN TIME. This will be a joint meeting for all
the Vanguard Funds listed above. It will be held at Vanguard's Malvern,
Pennsylvania headquarters, at 100 Vanguard Boulevard, in the Majestic Building.
At the meeting, we'll ask shareholders to vote on:
1. A proposal to reorganize your Fund into a Delaware business trust.
2. Five proposed changes to your Fund's fundamental investment limitations
(none of which would alter your Fund's current investment objective).
3. Any other business properly brought before the meeting.
By Order of the Board of Directors (Trustees)
Raymond J. Klapinsky, Secretary
100 Vanguard Boulevard
Malvern, PA 19355
February 16, 1998
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE EASILY AND QUICKLY BY TOLL-FREE TELEPHONE CALL, AT OUR WEBSITE, OR
BY MAIL. JUST FOLLOW THE SIMPLE INSTRUCTIONS THAT APPEAR ON YOUR ENCLOSED PROXY
CARD. PLEASE HELP YOUR FUND AVOID THE EXPENSE OF A FOLLOW UP MAILING BY VOTING
TODAY!
<PAGE> 6
VANGUARD ASSET ALLOCATION FUND
VANGUARD EQUITY INCOME FUND
VANGUARD GROWTH AND INCOME PORTFOLIO
VANGUARD PREFERRED STOCK FUND
VANGUARD/WELLESLEY INCOME FUND
VANGUARD/WELLINGTON FUND
VANGUARD/WINDSOR FUND
VANGUARD/WINDSOR II
SPECIAL MEETING OF SHAREHOLDERS
MAY 1, 1998
PROXY STATEMENT
INTRODUCTION
------------
This is a combined proxy statement for the eight Vanguard Funds listed at
the top of this page. We've divided the proxy statement into five parts:
<TABLE>
<S> <C>
Part 1-- An Overview begins on page 2.
Part 2-- Your Fund's Proposals--the longest part--also
begins on page 2.
Part 3-- More on Proxy Voting and Shareholder Meetings
begins on page 13.
Part 4-- Fund Information begins on page 14.
Part 5-- Director/Trustee Information begins on page 17.
</TABLE>
Please be sure to read the entire proxy statement before casting your vote.
Questions? Call us at 1-800-662-2739 (individual investors) or 1-800-523-1188
(participants in company-sponsored retirement plans administered by Vanguard).
This proxy statement was first mailed to shareholders the week of February 16,
1998.
1
<PAGE> 7
PART 1--AN OVERVIEW
The Board of Directors/Trustees has sent you this proxy statement to ask
for your vote on several proposals affecting your Fund. This table summarizes
the proposals and how they apply to the eight Vanguard Funds that have scheduled
a shareholder meeting for May 1, 1998.
<TABLE>
<CAPTION>
PROPOSAL FUNDS AFFECTED
- - - - - - - --------------------------------------------- -----------------------------
<C> <S> <C>
1. Reorganization into a Delaware Business
Trust All
2. Investment Limitation Changes
a. Interfund lending program All
b. Borrowing money and pledging assets All but Preferred Stock Fund
c. Investments in securities owned by
affiliates Wellesley Income Fund,
Windsor Fund, Windsor II
d. Investments in assessable securities Windsor Fund, Windsor II
e. Industry concentration Preferred Stock Fund
</TABLE>
- - - - - - - --------------------------------------------------------------------------------
PART 2--YOUR FUND'S PROPOSALS
PROPOSAL 1. REORGANIZATION INTO A DELAWARE BUSINESS TRUST (ALL FUNDS)
The Board of Directors/Trustees has approved a plan to reorganize your Fund
into a Delaware business trust. THE PURPOSE OF THE REORGANIZATION IS TO REDUCE
THE AMOUNT OF STATE TAXES THAT YOUR FUND PAYS ANNUALLY. Preferred Stock Fund
won't realize any tax savings as a result of the change, but it will benefit
from the efficiency of being organized the same way as all other Vanguard Funds.
To proceed with the reorganization plan, we need shareholder approval. The next
few pages of this proxy statement discuss important details of the
reorganization plan, including the following:
- Why we want to reorganize your Fund.
- How we plan to accomplish the reorganization.
- How the reorganization will affect your Fund.
- How a Delaware business trust compares to your Fund's current legal
structure.
- How many shareholder votes we need to approve the reorganization.
A SPECIAL NOTE TO SHAREHOLDERS OF PREFERRED STOCK FUND: Your Fund
currently operates under a different form of organization than the other
Vanguard Funds covered by this proxy statement. Your Fund is a common law trust
under Pennsylvania law, while the other Funds are Maryland corporations. This
difference is why we will occasionally note special considerations for Preferred
Stock Fund shareholders.
2
<PAGE> 8
A. WHY WE WANT TO REORGANIZE YOUR FUND
YOUR FUND WILL PAY LESS TAXES AS A BUSINESS TRUST. Your Fund (but not
Preferred Stock Fund) currently pays foreign franchise taxes to the Commonwealth
of Pennsylvania. This tax applies to your Fund because it is headquartered in
Pennsylvania and is a "foreign" corporation--that is, organized as a corporation
under the laws of a different state, Maryland. If your Fund were instead
organized in the form of a business trust (as many mutual funds are) it would be
exempt from the Pennsylvania foreign franchise tax. As a business trust, your
Fund would be subject to a different tax, the Pennsylvania county personal
property tax. However, Pennsylvania counties generally have stopped assessing
personal property taxes. This is because the Pennsylvania Supreme Court is
expected to declare the personal property tax unconstitutional. (The U.S.
Supreme Court declared a similar North Carolina tax unconstitutional in 1996.)
We believe it unlikely that your Fund, as reorganized, would become subject to
the personal property tax in the foreseeable future. If the personal property
tax were reinstated, or any similar state tax were imposed, we would re-evaluate
your Fund's options at that time.
The following table shows (i) the amount of Pennsylvania foreign franchise
taxes paid by your Fund for its last fiscal year; and (ii) the amount of
Pennsylvania personal property taxes that your Fund would have paid if it had
been organized as a business trust for the last fiscal year.
<TABLE>
<CAPTION>
LAST YEAR'S SAME BILL AS A
FUND PENNSYLVANIA TAX BILL BUSINESS TRUST
- - - - - - - ------------------------------ --------------------- --------------
<S> <C> <C>
Asset Allocation Fund $ 228,000 $ 0
Equity Income Fund $ 122,000 $ 0
Growth and Income Portfolio $ 129,000 $ 0
Preferred Stock Fund $ 0 $ 0
Wellesley Income Fund $ 537,000 $ 0
Wellington Fund $ 1,409,000 $ 0
Windsor Fund $ 1,438,000 $ 0
Windsor II $ 1,426,000 $ 0
</TABLE>
"Last Year's Pennsylvania Tax Bill" is the approximate amount that we
expect to save your Fund ANNUALLY by reorganizing it into a Delaware business
trust. These anticipated savings are based on the size of your Fund during its
last fiscal year. If your Fund grows, so will the amount of its tax savings. Of
course, the ONE-TIME costs of reorganizing will offset your Fund's tax savings
to a limited extent. These costs, which mostly relate to the printing, mailing
and tabulation of proxies, are estimated at $84,000 for Asset Allocation Fund,
$66,000 for Equity Income Fund, $69,000 for Growth and Income Portfolio, $10,000
for Preferred Stock Fund, $210,000 for Wellesley Income Fund, $640,000 for
Wellington Fund, $377,000 for Windsor Fund and $616,000 for Windsor II.
3
<PAGE> 9
DELAWARE LAW IS FAVORABLE TO MUTUAL FUNDS. We have proposed to reorganize
your Fund as a DELAWARE business trust because that state's business trust law
contains provisions that are well-suited to mutual funds. The "move" to Delaware
will be largely on paper; your Fund will continue to operate out of
Pennsylvania, just as it does now.
PREFERRED STOCK FUND SHAREHOLDERS: Your Fund currently pays no foreign
franchise taxes to Pennsylvania because it is already organized as a trust
under Pennsylvania law. We propose to reorganize your Fund as a Delaware
business trust to take advantage of Delaware's more favorable mutual fund
climate, and to gain the administrative convenience of having it organized
the same way as all other Vanguard Funds.
B. HOW WE PLAN TO ACCOMPLISH THE REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION. The Board of Directors/Trustees has
approved a written Agreement and Plan of Reorganization for your Fund. This
document spells out the terms and conditions that will apply to your Fund's
reorganization into a Delaware business trust.
THREE STEPS TO REORGANIZE. In essence, the reorganization will be a three-
step process. The first step is already taken: We have established a Delaware
business trust especially for your Fund. Prior to the reorganization, this trust
will issue a single share--to your Fund. Second, if this proposal is approved,
your Fund will transfer all of its assets and liabilities to the trust. As part
of this second step, the trust will open an account for each Fund shareholder.
The trust will then credit these accounts with the exact number of full and
fractional shares that each shareholder owned in the Fund on the reorganization
date. And third, we will dissolve your Fund's Maryland corporate entity (or, for
the Preferred Stock Fund, the Pennsylvania common law trust entity).
EFFECTIVE AS SOON AS PRACTICABLE. If approved by shareholders, the
reorganization will take place as soon as feasible after your Fund receives the
necessary regulatory approvals and legal opinions. We think this could be
accomplished by September of 1998. However, at any time prior to the
reorganization, the Board of Directors/Trustees may decide that it is in the
best interest of your Fund and its shareholders not to go forward with this
project. If that happens, your Fund will continue to operate as it is currently
organized.
C. HOW THE REORGANIZATION WILL AFFECT YOUR FUND
YOUR FUND'S INVESTMENT OBJECTIVE, POLICIES, INVESTMENT ADVISERS AND FISCAL
YEAR WILL STAY THE SAME. The reorganization will not change any of these.
However, we are asking shareholders to waive temporarily any existing investment
restrictions that would otherwise prohibit the reorganization. (For instance,
many mutual funds are prohibited from acquiring control of any company. As part
of the reorganization, however, your Fund would be acquiring control of the
4
<PAGE> 10
newly-formed trust.) Your vote in favor of the reorganization will operate as a
temporary waiver of any such restrictions.
THE REORGANIZATION WILL HAVE NO IMPACT ON YOUR FUND'S SHARE PRICE. On the
day of the reorganization, the newly-formed trust's share price will be the same
as that of your Fund. The reorganization will not cause your Fund's share price
to go up or down, and you will own the same number of shares. Any declared but
undistributed dividends or capital gains for your Fund will carry over in the
reorganization.
YOUR FUND'S EXISTING DIRECTORS/TRUSTEES WILL BE REELECTED. Federal
securities laws require that at least one-half of your Fund's Directors/Trustees
be elected by shareholders. While your Fund more than meets this standard now,
that technically will not be true once it reorganizes as a trust. Rather than
call another shareholder meeting to vote on Trustees after the reorganization,
we will treat shareholder approval of this proposal as authorization to elect
your Fund's current Board members to the same positions with the trust. This
approach will avoid the considerable expense of printing, mailing and tabulating
more proxies after the reorganization. (Please refer to Part 5 of this proxy
statement for detailed information concerning your Directors/Trustees.)
YOUR FUND'S EXISTING INDEPENDENT AUDITORS WILL BE RATIFIED. We will treat
shareholder approval of the reorganization as ratification of your Fund's
existing independent auditors, Price Waterhouse, LLP.
Price Waterhouse is the independent auditor for all Vanguard Funds. In this
role, Price Waterhouse audits and certifies the Funds' financial statements.
Price Waterhouse also reviews the Funds' Annual Reports to Shareholders and
their filings with the U.S. Securities and Exchange Commission. Neither Price
Waterhouse nor any of its partners has any direct or material indirect financial
interest in the Vanguard Funds. If you wish to request the attendance of a Price
Waterhouse representative at the shareholder meeting, you should contact the
Fund's Secretary at 100 Vanguard Boulevard, Malvern, PA 19355.
THE REORGANIZATION IS CONDITIONED ON TAX FREE TREATMENT AT THE FEDERAL
LEVEL. We fully expect that the reorganization will have no federal income tax
consequences for you or your Fund. We will not proceed with the reorganization
until this point is confirmed by an IRS ruling or opinion of counsel. Following
the reorganization, from a tax standpoint, the adjusted basis of your Fund
shares will be the same as before. We do not expect shareholders to incur any
personal state or local taxes as a result of the reorganization, but you should
consult your own tax adviser to be sure.
VOTING RIGHTS WILL BE BASED ON THE DOLLAR AMOUNT OF YOUR INVESTMENT. After
the reorganization, your voting rights will become "dollar-based"--which is a
different voting rights system than your Fund uses now. Currently, all Vanguard
Funds provide shareholders with one vote for each share that they own. This
share-based system treats shareholders equitably so long as all shares of a
5
<PAGE> 11
particular Fund have the same share price. However, fairness tends to erode when
a Fund offers more than one series of shares (we often refer to these as
"portfolios"). The share prices of a Fund's different portfolios inevitably
diverge over time due to their different investment programs. As a result, when
issues are voted at the Fund level, the owners of lower-priced shares have
relatively greater voting clout than the owners of higher-priced shares. The
change to dollar-based voting will ensure that shareholders' voting rights
remain proportionate to their financial interests. While your Fund currently
offers only one series of shares, dollar-based voting rights will apply to any
additional portfolios that your Fund may offer in the future. (An exception here
is that Windsor Fund and Windsor II are actually separate portfolios of
Vanguard/Windsor Funds, Inc. The reorganization will accord shareholders of
Windsor II--which has the higher share price at this time--voting rights that
are financially equal to those enjoyed by shareholders of Windsor Fund.)
YOUR FUND WILL STOP ISSUING SHARE CERTIFICATES AND WILL CONVERT ANY
OUTSTANDING SHARE CERTIFICATES TO RECORD ENTRY FORM. In today's financial world,
very few investors hold share certificates as physical evidence of their mutual
fund investments. Instead, investors' mutual fund holdings are maintained and
accounted for as "record entries" on the fund's computer system. The main
problems with share certificates are that:
- They present opportunities for theft, loss and fraud--and therefore
offer less protection to shareholders, rather than more.
- They're especially inconvenient--you must return your certificates to
the fund before your shares can be redeemed or exchanged.
In light of these downsides and the minimal demand for share certificates,
your Fund will stop issuing them after the reorganization. In addition, your
Fund will convert any outstanding share certificates to record entry form. This
will not happen automatically; we will arrange conversion details separately
with the Fund's certificate holders.
D. HOW A DELAWARE BUSINESS TRUST COMPARES TO YOUR FUND'S
CURRENT LEGAL STRUCTURE
Federal securities laws have much to say about the way that mutual funds
operate, but they do not cover every aspect of a fund's existence. State law and
each fund's governing documents fill in most of the gaps. The following
discussion compares the state law and documents currently governing your Fund
with the state law and documents that will apply if it reorganizes as a Delaware
business trust. This discussion is not a comprehensive review of all technical
distinctions between the different legal structures. (You or your attorney would
need to review the laws and Fund documents first-hand for that sort of
analysis.) We simply want you to know how a Delaware business trust compares in
certain
6
<PAGE> 12
key areas to a Maryland corporation--your Fund's present legal structure.
(Preferred Stock Fund's present legal structure is a Pennsylvania common law
trust.)
SHAREHOLDER LIABILITY. Shareholders of a Fund organized as a Maryland
corporation generally have no personal liability for the Fund's obligations. By
contrast, shareholders of a Fund organized as a Pennsylvania common law trust
theoretically could have this type of liability if the Fund itself had no
remaining assets to pay its obligations. With a Delaware business trust,
shareholders generally have the same protection from personal liability that
they would have as shareholders of a Maryland corporation.
DIRECTOR/TRUSTEE LIABILITY AND INDEMNIFICATION. With a Maryland
corporation, Directors cannot be held liable for their activities in that role
so long as they perform their duties in good faith, prudently and in the Fund's
best interests. The same is generally true for the Trustees of a Pennsylvania
common law trust or Delaware business trust, if so provided in the Fund's
governing documents. Under all three legal structures, the Fund can indemnify
its Directors/Trustees from claims and expenses arising out of their service to
the Fund--unless, that is, a Director/Trustee has acted improperly in a
particular matter.
SHAREHOLDER VOTING RIGHTS AND MEETINGS. Under a Fund organized as either a
Maryland corporation or Pennsylvania common law trust, shareholders' voting
rights currently are based on the number of shares that they own. As we
explained on page 5, as a Delaware business trust, your Fund would shift to a
dollar-based voting rights system. As a Maryland corporation, a Fund generally
must call a shareholder meeting if one is requested in writing by investors
entitled to cast 25% or more of the Fund's votes. For a Pennsylvania common law
trust, 20% is the required percentage. As Delaware business trusts, the Funds
will adopt a 25% standard.
SHARE CERTIFICATES. Funds organized as Maryland corporations generally
issue share certificates to their investors upon request. Funds organized as
Pennsylvania common law trusts or Delaware business trusts are not required to
issue share certificates. As explained on page 6, following the reorganization,
your Fund will stop issuing share certificates and will convert any outstanding
certificates to record entry form.
E. HOW MANY SHAREHOLDER VOTES WE NEED TO APPROVE THE
REORGANIZATION
To go forward with the reorganization, a majority of your Fund's
outstanding shares on February 16, 1998 must vote in favor of this proposal.
(Shareholders of Windsor Fund and Windsor II will vote as separate funds on this
proposal.) YOUR FUND'S BOARD OF DIRECTORS/TRUSTEES RECOMMENDS THAT YOU APPROVE
THE REORGANIZATION.
7
<PAGE> 13
PROPOSAL 2. FIVE CHANGES TO FUNDAMENTAL INVESTMENT LIMITATIONS
2a. INTERFUND LENDING PROGRAM (ALL FUNDS)
We want to establish an interfund lending program for all Vanguard Funds,
including the ones that are not covered in this proxy statement. The program
will allow the Vanguard Funds to loan money to each other if--and only if--it
makes good financial sense to do so on both sides of the transaction. THE FUNDS
WILL NOT USE THIS PROGRAM TO LEVERAGE THEIR INVESTMENTS. The U.S. Securities and
Exchange Commission has granted permission for the Vanguard Funds to participate
in this program, subject to several conditions. We need shareholder approval, as
well. In the following paragraphs we explain these important points:
- Why your Fund would want to borrow money.
- Why your Fund would want to lend money.
- How the interfund lending program will work.
- What safeguards will ensure fair and beneficial treatment of your Fund.
- What your Fund's new investment limitation will say.
- How many shareholder votes we need to approve the interfund lending
program.
YOUR FUND WOULD BORROW MONEY TO MEET REDEMPTION REQUESTS WHILE AWAITING THE
PROCEEDS OF SECURITIES SALES. Normally, your Fund has sufficient cash on hand
to satisfy all redemption requests. However, at times your Fund could be short
on cash while awaiting settlement of its securities trades (typically a three
business day process). While the law permits your Fund to defer redemption
payments for up to seven days, we know that shareholders prefer to be paid
immediately. This is the sole circumstance--and an unusual one, at that--under
which your Fund would want to borrow money.
YOUR FUND ROUTINELY LENDS MONEY TO BANKS--THROUGH REPURCHASE AGREEMENTS--TO
GENERATE INCOME ON ITS CASH RESERVES. All Funds--including your own--maintain
cash reserves to satisfy day-to-day redemption requests. Funds put their cash
reserves to work by entering into repurchase agreements with banks (and other
institutions, as well). In essence, these transactions are loans from the Fund
to a bank. The Fund acquires a short-term, high quality security from the bank,
who, in turn, agrees to buy that same security back from the Fund the next
day--at a higher price. The difference between the purchase and resale prices
represents the Fund's "interest" on the loan.
THE NEW PROGRAM WILL LET VANGUARD MATCH THE BORROWING AND LENDING NEEDS OF
DIFFERENT FUNDS--TO EVERYONE'S BENEFIT. On a given day, some Vanguard Funds may
wish to meet redemptions by borrowing money from banks, and other Vanguard Funds
may wish to generate additional income by lending money to banks. Under the
interfund lending program, Vanguard could match borrowing Funds with lending
Funds. Vanguard would then arrange loans between the matched Funds, in keeping
with a master loan agreement and the SEC's
8
<PAGE> 14
conditions for this program. By dealing with each other instead of banks, the
Funds will be able to borrow money more cheaply and loan money more profitably.
This is because (i) there will be no bank fees for these transactions, and (ii)
we will have eliminated the banks' spread--that is, the difference between the
rates that they typically charge borrowers and pay lenders. In addition, the
interfund lending program will allow the Funds to forego the otherwise
prudent--but expensive--step of maintaining a committed line of credit with a
bank to cover any emergency borrowing needs. (We estimate that, altogether, the
Vanguard Funds will save more than $800,000 annually by eliminating the need for
a committed line of credit.)
INTERFUND LOANS WILL PRESENT VERY LITTLE CREDIT RISK. When it lends money
to another Fund, your Fund would be subject to credit risk--the possibility that
the other Fund might fail to repay the loan. But your Fund faces this same type
of risk when it lends money to a bank, through a repurchase agreement. And we
believe that the risk is extremely small in both cases. Below we describe
various safeguards designed to minimize the credit risk of interfund loans.
THESE SAFEGUARDS ARE IN PLACE TO ENSURE FAIR AND BENEFICIAL TREATMENT OF
ALL VANGUARD FUNDS. No Vanguard Fund will be permitted to borrow or lend
through the program unless it gets a more favorable interest rate than is
available from a typical bank. Other important protections for your Fund include
these points:
(i) Interfund loan rates will be determined by a pre-established formula
based on quotations from independent banks.
(ii) Funds that borrow money must fully secure their interfund loans OR
have total assets at least 10 times greater than the amount of the
loan.
(iii) Equity Funds will be permitted to loan no more than 5% of their net
assets through the interfund lending program; bond Funds could lend
no more than 7.5%; and money market Funds could lend no more than
10%.
(iv) All interfund loans will be very short-term. They must be repaid
within the time it takes for securities trades to settle, not to
exceed seven days.
(v) No Fund can use the interfund lending program to borrow an amount
larger than 125% of its total net cash redemptions for the preceding
seven calendar days.
(vi) A lending Fund may call in its loans on one business day's notice to
the borrowing Fund.
(vii) Each Fund will continue to maintain non-committed loan arrangements
with banks to provide for situations where an interfund loan is not
possible or beneficial.
9
<PAGE> 15
(viii) Each Fund's Board of Directors/Trustees will monitor the interfund
lending program to make sure that the interfund loan rate formula
and the Fund's participation in the program continue to be
appropriate.
YOUR FUND WILL ADOPT A NEW INVESTMENT POLICY TO PROVIDE FOR INTERFUND
LOANS. Your Fund's existing investment policies on borrowing and lending do not
allow for interfund loans. If shareholders approve this proposal, we'll adopt a
new investment policy which states that your Fund can borrow and lend money
through the interfund loan program so long as it complies with SEC conditions.
We'll designate this new policy as "fundamental," meaning that your Fund will
not be able to change it in the future without shareholder approval.
HOW MANY SHAREHOLDER VOTES WE NEED TO APPROVE INTERFUND LENDING. Your
Fund's participation in the interfund lending program must be approved by the
lesser of (i) a majority of your Fund's outstanding shares on February 16, 1998,
or (ii) 67% of the shares voted, so long as more than 50% of the shares actually
vote. (Shareholders of Windsor Fund and Windsor II will vote as separate funds
on this proposal.) YOUR FUND'S BOARD OF DIRECTORS/TRUSTEES RECOMMENDS THAT YOU
APPROVE THE INTERFUND LENDING PROGRAM.
2b. BORROWING MONEY AND PLEDGING ASSETS (ALL FUNDS BUT PREFERRED STOCK
FUND)
We want to establish standard limits on (i) the total amount of money that
each Vanguard Fund can borrow from all sources and (ii) assets that each Fund
can pledge to secure any loans. This proposal ties in with proposal 2a.,
concerning the interfund lending program. BY STANDARDIZING THE FUNDS' BORROWING
AND PLEDGE LIMITS, WE EXPECT TO SIMPLIFY VANGUARD'S ADMINISTRATION OF THE
INTERFUND LENDING PROGRAM. As you can see from the following table, currently
there is a good deal of variation in the Funds' stated borrowing and pledge
limitations (these are expressed as a percentage of each Fund's net assets or
total assets):
<TABLE>
<CAPTION>
FUND BORROWING LIMIT PLEDGE LIMIT
- - - - - - - ----------------------------- -------------------- --------------------
<S> <C> <C>
Asset Allocation Fund 15% of net assets 5% of total assets
Equity Income Fund 15% of total assets 5% of total assets
Growth and Income Portfolio 10% of net assets 5% of total assets
Preferred Stock Fund 15% of net assets 15% of net assets
Wellesley Income Fund 10% of net assets 5% of total assets
Wellington Fund 10% of total assets no stated limit
Windsor Fund 10% of net assets no stated limit
Windsor II 10% of net assets no stated limit
</TABLE>
The Funds' different investment objectives do not explain the variations in
their borrowing and pledge limits. Rather, these variations arise from the fact
10
<PAGE> 16
that many different attorneys and regulators have worked with the Funds over the
years. We would like to realign the Funds' limits by establishing a uniform 15%
OF NET ASSETS limitation on any money borrowed or assets pledged. Any future
changes to this policy would require shareholder approval. Keep in mind that
borrowing money and pledging assets are not integral parts of your Fund's
investment program. As we explained in the interfund lending discussion, your
Fund would borrow money only to meet redemptions while awaiting the proceeds of
securities sales.
HOW MANY SHAREHOLDER VOTES WE NEED TO APPROVE THE 15% BORROWING AND PLEDGE
LIMIT. The change to a uniform 15% borrowing and pledge limitation must be
approved by the lesser of (i) a majority of your Fund's outstanding shares on
February 16, 1998, or (ii) 67% of the shares voted, so long as more than 50% of
the shares actually vote. (Shareholders of Windsor Fund and Windsor II will vote
as separate funds on this proposal. Preferred Stock Fund shareholders will not
vote on this proposal because their Fund already meets the new standard.) YOUR
FUND'S BOARD OF DIRECTORS RECOMMENDS THAT YOU APPROVE THE STANDARD BORROWING AND
PLEDGE LIMITS.
2c. INVESTMENTS IN SECURITIES OWNED BY AFFILIATES (WELLESLEY INCOME FUND,
WINDSOR FUND, AND WINDSOR II, ONLY)
We want to eliminate your Fund's policy of avoiding investments in
securities that are owned in certain amounts by Directors, officers, and key
advisory personnel. THIS POLICY IS WELL-INTENTIONED, BUT WRONGLY FOCUSED AND
UNNECESSARY FOR YOUR FUND. Having originated many years ago with now obsolete
state securities laws, which were intended to prevent conflicts of interest in
the management of mutual funds, the policy states that your Fund will not:
"Purchase or retain securities of any company in which
those officers and Directors of the Fund and/or its
investment advisers owning more than 1/2 of 1% of such
securities, own in the aggregate more than 5% of such
securities."
Confused? You're not alone. Preventing conflicts of interest in fund
management is, of course, a critically important objective. For this reason,
your Fund has adopted a stringent Code of Ethics that restricts the private
investment activities of Directors, officers, key advisory personnel and a wide
range of Vanguard employees. Our Code of Ethics supplements management's
separate fiduciary obligation to act with the Fund's best interests at heart. It
places the burden of avoiding potential conflicts squarely on those who would
stand to gain by inappropriately influencing or benefiting from your Fund's
investment program. The current policy takes the opposite approach--it
potentially restricts your Fund's investments. In other words, the current
policy subordinates your
11
<PAGE> 17
Fund's investment interests to those of its Directors, officers and key advisory
personnel. We believe that this is wrong.
HOW MANY SHAREHOLDER VOTES WE NEED TO ELIMINATE THE POLICY CONCERNING
INVESTMENTS IN SECURITIES OWNED BY AFFILIATES. Elimination of this policy will
require approval by the lesser of (i) a majority of your Fund's outstanding
shares on February 16, 1998, or (ii) 67% of the shares voted, so long as more
than 50% of the shares actually vote. (Shareholders of Windsor Fund and Windsor
II will vote as separate funds on this proposal.) YOUR FUND'S BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE TO ELIMINATE THIS POLICY.
2d. INVESTMENTS IN ASSESSABLE SECURITIES (WINDSOR FUND AND WINDSOR II,
ONLY)
We want to eliminate your Fund's policy of not purchasing assessable
securities. THIS POLICY HAS NO APPARENT RELEVANCE TO YOUR FUND'S INVESTMENT
PROGRAM; ITS ELIMINATION WOULD HAVE NO EFFECT ON THE WAY THAT YOUR FUND
OPERATES. "Assessable security" is a legal term, not an investment term. It
refers to situations where a person fully pays for securities but could be
required to contribute additional sums of money to the person who issued the
securities, or its creditors. Assessable securities are unheard of in the world
of publicly traded securities, where your Fund focuses its investments. Your
Fund has carried this arcane policy on its books for many years--for no real
reason--and we would now like to eliminate it.
HOW MANY SHAREHOLDER VOTES WE NEED TO ELIMINATE THE POLICY CONCERNING
INVESTMENTS IN ASSESSABLE SECURITIES. Elimination of this policy will require
approval by the lesser of (i) a majority of your Fund's outstanding shares on
February 16, 1998, or (ii) 67% of the shares voted, so long as more than 50% of
the shares actually vote. (Shareholders of Windsor Fund and Windsor II will vote
as separate funds on this proposal.) YOUR FUND'S BOARD OF DIRECTORS RECOMMENDS
THAT YOU VOTE TO ELIMINATE THIS POLICY.
2E. INDUSTRY CONCENTRATION (PREFERRED STOCK FUND, ONLY)
We want to restate your Fund's industry concentration policy. OUR PROPOSED
CHANGES WILL ALLOW YOUR FUND TO TAKE FULL ADVANTAGE OF AVAILABLE PREFERRED STOCK
OFFERINGS. Your Fund's current industry concentration policy states that it will
not invest more than 25% of its assets in any one industry, except for the
"electric and/or gas industries." (The SEC requires mutual funds to identify any
specific industries in which they will "concentrate"--that is, invest more than
25% of their assets.) However, the market for preferred stocks has changed over
the years. Today, financial-services companies are dominant issuers of new
preferred stocks. In addition, other sorts of utilities companies--not just
electric and gas
12
<PAGE> 18
companies--are among the most active issuers of preferred stocks. Your Fund
wishes to adapt its concentration policy to this changed environment.
The new concentration policy states that your Fund will invest more than
25% of its assets in the financial-services industry and more than 25% of its
assets in the utilities industry. By concentrating its investments in particular
industries, your Fund assumes the risk that those industries will not perform as
well as the market at large. However, the market at large does not issue
preferred stocks--only companies in certain industries do (for the most part,
industries subject to regulations that make preferred stock an attractive
financing tool). In today's securities markets, industry concentration is
unavoidable for a fund that invests primarily in preferred stocks.
HOW MANY SHAREHOLDER VOTES WE NEED TO RESTATE YOUR FUND'S CONCENTRATION
POLICY. Restating your Fund's concentration policy will require approval by the
lesser of (i) a majority of your Fund's outstanding shares on February 16, 1998,
or (ii) 67% of the shares voted, so long as more than 50% of the shares actually
vote. YOUR FUND'S BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE TO RESTATE THE
CONCENTRATION POLICY.
- - - - - - - --------------------------------------------------------------------------------
PART 3--MORE ON PROXY VOTING AND SHAREHOLDER MEETINGS
This section provides information on a number of topics relating to proxy
voting and shareholder meetings.
PROXY SOLICITATION METHODS. Your Fund will solicit shareholder proxies in
a variety of ways. All shareholders who are entitled to vote will receive these
proxy materials by mail. In addition, Vanguard employees and officers may
solicit shareholder proxies in person, by telephone or through the Internet. We
may also arrange for an outside firm, Shareholder Communications Corporation, to
solicit shareholder votes by telephone on the Fund's behalf. This procedure,
which is expected to cost the Fund approximately $4 per shareholder vote, will
be employed only after all more cost-effective means of soliciting shareholder
votes have been exhausted.
PROXY SOLICITATION COSTS. Your Fund will pay all costs of soliciting
proxies from its own shareholders, including costs relating to the printing,
mailing and tabulation of proxies. By voting immediately, you can help your Fund
avoid the considerable expense of a second solicitation.
QUORUM. In order for the shareholder meeting to forward, your Fund must
achieve a quorum. This means that a majority of your Fund's shares must be
represented at the meeting--either in person or by proxy. All returned proxies
count towards a quorum, regardless of how they are voted ("For," "Against" or
"Abstain"). Your Fund will count broker non-votes towards a quorum, but not
towards the approval of any proposals. (Broker non-votes are shares for which
13
<PAGE> 19
(i) the underlying owner has not voted and (ii) the broker holding the shares
does not have discretionary authority to vote on the particular matter.)
REVOKING YOUR PROXY. You may revoke your proxy at any time up until voting
results are announced at the shareholder meeting. You can do this by writing to
your Fund's Secretary, Raymond J. Klapinsky, at 100 Vanguard Boulevard, Malvern,
PA 19355 or by voting in person at the meeting. In addition, you can revoke a
prior proxy simply by voting again--using your original proxy card, by toll-free
telephone call, or at our website.
SHAREHOLDER PROPOSALS. Any shareholder proposals to be included in the
proxy statement for your Fund's next annual or special meeting must be received
by the Fund within a reasonable period of time prior to that meeting. Your Fund
has no current plans to hold an annual or special meeting in 1999.
NOMINEE ACCOUNTS. Upon request, the Vanguard Funds will reimburse nominees
for their reasonable expenses in forwarding proxy materials to beneficial owners
of the Funds' shares. Please submit invoices for our review to Vanguard
Financial Center, P.O. Box 2600, Valley Forge, PA 19482.
ANNUAL/SEMI-ANNUAL REPORTS. Your Fund's most recent annual and semi-annual
reports to shareholders are available at no cost. To request a report, please
call us toll-free at 1-800-662-2739 or write us at Vanguard Financial Center,
P.O. Box 2600, Valley Forge, PA 19482.
LITIGATION. Your Fund is not involved in any litigation.
OTHER MATTERS. At this point, we know of no other business to be brought
before the shareholder meeting. However, if any other matters do come up, we
will use our best judgment to vote on your behalf. If you object to our voting
other matters on your behalf, please tell us so in writing before the meeting.
THE VANGUARD GROUP, INC. Your Fund is a member of The Vanguard Group,
Inc., the only mutual mutual fund company. Vanguard is owned jointly by the
Funds it oversees (and therefore by the shareholders of those Funds). Vanguard
provides the Funds--more than 95 distinct investment portfolios-- with their
corporate management, administrative and distribution services on an at-cost
basis.
- - - - - - - --------------------------------------------------------------------------------
PART 4--FUND INFORMATION
This section contains background information about your Fund and its
investment adviser(s).
14
<PAGE> 20
A. YOUR FUND (AS OF JANUARY 23, 1998)
<TABLE>
<CAPTION>
OUTSTANDING 5%
FUND NAME ORGANIZATION NET ASSETS SHARES OWNERS*
- - - - - - - ------------------- ------------ --------------- ------------- -------
<S> <C> <C> <C> <C>
Asset Allocation
Fund 1988 $ 4,183,793,632 199,133,443 (1)
Equity Income Fund 1988 $ 2,121,054,107 96,105,759 None
Growth and Income
Portfolio 1986 $ 2,197,588,747 85,809,791 (2)(3)
Preferred Stock
Fund 1982 $ 338,119,710 32,668,571 (4)
Wellesley Income
Fund 1970 $ 7,585,407,306 351,013,758 None
Wellington Fund 1928 $21,822,688,346 749,920,562 None
Windsor Funds
- - - - - - - --Windsor Fund 1959 $20,280,827,560 1,224,687,655 (5)
- - - - - - - --Windsor II 1985 $23,762,311,723 860,329,896 (6)
</TABLE>
- - - - - - - ------------------------------------------
*SEC rules require each Fund to tell you name and address of any person known to
be the beneficial owner of more than 5% of the Fund's outstanding shares. The
Fund must also tell you how many shares such persons own and what percentage of
the Fund these shares represent.
(1) Vanguard STAR Fund--Moderate Growth Portfolio, 100 Vanguard Boulevard,
Malvern, PA 19355, owns approximately 17,179,000 shares, (8.6%) of the Fund,
and Vanguard STAR Fund--Growth Portfolio owns approximately 14,215,000
shares (7.1%) of the Fund.
(2) EDS Deferred Compensation Plan, 5400 Legacy Drive, Plano, TX 75024, owns
approximately 6,952,000 shares (8.1%) of the Fund.
(3) BP America Savings Plans Master Trust, 34 Exchange Place, Jersey City, N.J.
07302, owns approximately 6,423,000 shares (7.5%) of the Fund.
(4) Johnson & Higgins Retirement Plan, 111 Wall Street, New York, NY 10005, owns
approximately 2,260,000 shares (6.9%) of the Fund.
(5) Vanguard STAR Portfolio, 100 Vanguard Boulevard, Malvern, PA 19355, owns
approximately 65,570,000 shares (5.4%) of the Fund.
(6) Vanguard STAR Portfolio, 100 Vanguard Boulevard, Malvern, PA 19355, owns
approximately 71,846,000 shares (8.4%) of the Fund.
15
<PAGE> 21
B. YOUR FUND'S INVESTMENT ADVISER(S)
<TABLE>
<CAPTION>
FUND NAME ADVISER NAME AND ADDRESS
- - - - - - - ---------------------------- -----------------------------------------
<S> <C>
Asset Allocation Fund Mellon Capital Management Corporation
595 Market Street, Suite 3000,
San Francisco, CA 94194
Equity Income Fund Newell Associates
525 University Avenue,
Palo Alto, CA 94301
Spare, Kaplan, Bischel & Associates
44 Montgomery Street, Suite 3500,
San Francisco, CA 94194
John A. Levin & Co.
One Rockefeller Plaza, 25th Floor,
New York, NY 10020
The Vanguard Group, Inc.
100 Vanguard Boulevard,
Malvern, PA 19355
Growth and Income Portfolio Franklin Portfolio Associates LLC
Two International Place, Boston, MA
02110
Preferred Stock Fund Wellington Management Company, LLP
75 State Street, Boston, MA 02109
Wellesley Income Fund Wellington Management Company, LLP
See above
Wellington Fund Wellington Management Company, LLP
See above
Windsor Fund Wellington Management Company, LLP
See above
Windsor II Barrow, Hanley, Mewwhinney & Strauss,
Inc.
One McKinney Avenue,
15th Floor, Dallas, TX 75204
Tuckman Capital Management, Inc.
60 East Sir Francis Drake Boulevard,
Larkspur, CA 94939
Equinox Capital Management, Inc.
590 Madison Avenue, 41st Floor,
New York, NY 10022
The Vanguard Group, Inc.
See above
</TABLE>
- - - - - - - --------------------------------------------------------------------------------
16
<PAGE> 22
PART 5--DIRECTOR/TRUSTEE INFORMATION
Your "yes" vote on the reorganization proposal (see page 2) will be treated
as a vote to elect each of your Fund's current Directors/Trustees to the
position of Trustee with the newly-organized Delaware business trust. Following
the reorganization, the Trustees will serve until the next election or until
their terms are for some reason terminated.
This section provides detailed information about the individual
Directors/Trustees. The information presented includes:
- The backgrounds and qualifications of the Directors/Trustees.
- The identity of your Fund's principal executive officers.
- How many Fund shares are owned by management.
- How often the Board and its committees meet.
- How Directors/Trustees are compensated.
A. THE BACKGROUNDS AND QUALIFICATIONS OF DIRECTORS/TRUSTEES
Except as otherwise noted, the individuals listed below currently serve as
Directors/Trustees of The Vanguard Group, Inc. and all Vanguard Funds. The
mailing of address of the Directors/Trustees is P.O. Box 876, Valley Forge, PA
19482.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING THE
NAME AGE LAST 5 YEARS AND OTHER DIRECTORSHIPS
- - - - - - - -------------------------- --- -------------------------------------
<S> <C> <C>
John C. Bogle(1) 68 Senior Chairman of the Board and
Director of The Vanguard Group,
Inc., and all Vanguard Funds;
Director of The Mead Corporation,
General Accident Insurance Company,
and Chris-Craft Industries, Inc.
John J. Brennan(1) 43 Chairman of the Board, Director,
President and Chief Executive
Officer of The Vanguard Group,
Inc., and all Vanguard Funds
Robert E. Cawthorn(2) 62 Chairman Emeritus and Director of
Rhone-Poulenc Rorer, Inc.; Managing
Director of Global Health Care
Partners/DLJ Merchant Banking
Partners; Director of Sun Company,
Inc., and Westinghouse Electric
Corp.
</TABLE>
17
<PAGE> 23
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING THE
NAME AGE LAST 5 YEARS AND OTHER DIRECTORSHIPS
- - - - - - - -------------------------- --- -------------------------------------
<S> <C> <C>
Barbara Barnes Hauptfuhrer 69 Director of The Great Atlantic and
Pacific Tea Co., IKON Office
Solutions, Inc., Raytheon Co.,
Knight-Ridder, Inc., Massachusetts
Mutual Life Insurance Co., and
Ladies Professional Golf
Association; Trustee Emerita of
Wellesley College
Bruce K. MacLaury(3) 66 President Emeritus of The Brookings
Institution; Director of American
Express Bank Ltd., The St. Paul
Companies, Inc., and National Steel
Corp.
Burton G. Malkiel(2) 65 Chemical Bank Chairman's Professor of
Economics, Princeton University;
Director of Prudential Insurance
Co. of America, Amdahl Corp., Baker
Fentress & Co., The Jeffrey Co.,
and Southern New England
Telecommunications Co.
Alfred M. Rankin, Jr. 56 Chairman, President, and Chief
Executive Officer of NACCO
Industries, Inc.; Director of NACCO
Industries, The BFGoodrich Co., and
the Standard Products Co.
John C. Sawhill 61 President and Chief Executive Officer
of The Nature Conservancy;
formerly, Director and Senior
Partner of McKinsey & Co. and
President of New York University;
Director of Pacific Gas and
Electric Co., Procter & Gamble Co.,
and NACCO Industries
James O. Welch, Jr. 66 Retired Chairman of Nabisco Brands,
Inc.; retired Vice Chairman and
Director of RJR Nabisco; Director
of TECO Energy, Inc., and Kmart
Corp.
J. Lawrence Wilson 61 Chairman and Chief Executive Officer
of Rohm & Haas Co.; Director of
Cummins Engine Co., and The Mead
Corporation; Trustee of Vanderbilt
University
</TABLE>
18
<PAGE> 24
- - - - - - - ---------------
(1) Messrs. Bogle and Brennan are considered "interested persons" because they
serve as Fund officers, as well as Directors/Trustees.
(2) Messrs. Cawthorn and Malkiel do not serve as Directors of Vanguard Equity
Income Fund.
(3) Mr. MacLaury does not serve as Director/Trustee of Vanguard Municipal Bond
Fund or the Vanguard State Tax-Free Funds.
B. PRINCIPAL EXECUTIVE OFFICERS
The following individuals are the principal executive officers of The
Vanguard Group, Inc., and all Vanguard Funds. Each principal executive officer
has held substantially the same position with the Funds for the last five years
or more (except that Mr. Brennan succeeded Mr. Bogle as Chairman of the Board on
January 31, 1998). Their mailing address is P.O. Box 876, Valley Forge, PA
19482.
<TABLE>
<CAPTION>
NAME AGE OFFICE
- - - - - - - -------------------- --- ----------------------------------------
<S> <C> <C>
John C. Bogle 68 Senior Chairman of the Board
John J. Brennan 43 Chairman of the Board, President and
Chief Executive Officer
Raymond J. Klapinsky 59 Secretary
Richard F. Hyland 60 Treasurer
Karen E. West 51 Controller
</TABLE>
C. FUND SHARES OWNED BY DIRECTORS/TRUSTEES
Messrs. Bogle and Brennan each have invested substantially all of their
assets in the Vanguard Funds. The independent Directors/Trustees are also
committed to investing a significant portion of their assets in the Funds. All
Directors/Trustees allocate their investments among more than 95 Vanguard Funds
based on their own investment needs. Their aggregate Vanguard investments
totaled over $79.5 million as of December 31, 1997. The total amount of Fund
shares beneficially owned by each Director/Trustee as of that date, along with
the year in which each individual became a Director/Trustee of the Vanguard
Funds appears below. As of December 31, 1997, the Directors/ Trustees and
officers owned less than 1% of each Fund's total outstanding shares.
JOHN C. BOGLE (1966)
Asset Allocation Fund -- 18,601 shares (32,783 shares); Equity Income
Fund -- (18,284 shares); Growth and Income Portfolio -- 35,487 shares; Preferred
Stock Fund -- 14,798 shares; Wellesley Income Fund -- 32,005 shares; Wellington
Fund -- 23,967 shares (4,622 shares); Windsor Fund -- 148,865
19
<PAGE> 25
shares (92,101 shares); All Vanguard Funds -- 1,655,037 shares (701,163 shares).
NOTE: The bracketed amounts represent shares held by charitable and related
trusts in which Mr. Bogle disclaims ownership, control or voting power.
JOHN J. BRENNAN (1987)
Asset Allocation Fund -- 26,827 shares; Equity Income Fund -- 47 shares;
Growth and Income Portfolio -- 889 shares; Wellesley Income Fund -- 2,768
shares; Wellington Fund -- 5,247 shares; Windsor Fund -- 184,121 shares; Windsor
II -- 40 shares; All Vanguard Funds -- 684,779 shares.
ROBERT E. CAWTHORN (1992)
All Vanguard Funds -- 8,369,629 shares.
BARBARA B. HAUPTFUHRER (1972)
Asset Allocation Fund -- 3,501 shares; Equity Income Fund -- 661 shares;
Wellesley Income Fund -- 999 shares; Wellington Fund -- 1,410 shares; Windsor
Fund -- 55,956 shares; Windsor II -- 27,188 shares; All Vanguard Funds --
1,910,269 shares.
BRUCE K. MACLAURY (1989)
Wellington Fund -- 16,239 shares; All Vanguard Funds -- 20,373 shares.
BURTON G. MALKIEL (1977)
Wellesley Income Fund -- 1,040 shares; Windsor Fund -- 124,797 shares; All
Vanguard Funds -- 520,104 shares.
ALFRED M. RANKIN, JR. (1992)
All Vanguard Funds -- 396,002 shares.
JOHN C. SAWHILL (1991)
Asset Allocation Fund -- 3,865 shares; All Vanguard Funds -- 790,828
shares.
JAMES O. WELCH, JR. (1971)
Asset Allocation Fund -- 5,864 shares; Wellesley Income Fund -- 587 shares;
Wellington Fund -- 517 shares; Windsor Fund -- 31,392 shares; Windsor
II -- 50,780 shares; All Vanguard Funds -- 144,797 shares.
J. LAWRENCE WILSON (1985)
All Vanguard Funds -- 311,590 shares.
20
<PAGE> 26
D. BOARD AND COMMITTEE MEETINGS
During 1997, your Fund's Board of Directors/Trustees held 11 meetings.
Your Board has a standing Compensation, Nomination and Audit Committee,
which consists of all Directors/Trustees who are not "interested persons" of the
Fund (that is, all but Messrs. Bogle and Brennan). During 1997, the Committee
held 2 meetings. The Committee's role is to:
1. Evaluate the performance of your Fund's officers and employees.
2. Develop and approve the compensation arrangements for your Fund's
officers and employees.
3. Interview, evaluate and recommend to shareholders candidates for
election your Fund's Board of Directors/Trustees. (The Committee will
consider shareholder nominations for Director/Trustee; please write to
Mr. Wilson, Chairman of the Committee.).
4. Select your Fund's independent accountants and review their fees.
5. Oversee your Fund's internal controls.
Following the reorganization, your Fund's Board of Trustees will form a
similar committee.
E. DIRECTOR/TRUSTEE COMPENSATION
The same individuals serve as Directors/Trustees of all Vanguard Funds, and
each Fund pays a proportionate share of the Directors'/Trustees' compensation.
The Funds employ their officers on a shared basis, as well. However, officers
are compensated by The Vanguard Group, Inc., not the Funds. The reorganization
(Proposal 1) will not change the compensation arrangements described in this
section.
INDEPENDENT DIRECTORS/TRUSTEES. The Funds compensate their independent
Directors/Trustees -- that is, the ones who are not also officers of the
Fund -- in three ways:
- The independent Directors/Trustees receive an annual fee for their
service to the Funds, which is subject to reduction based on absences from
scheduled Board meetings.
- The independent Directors/Trustees are reimbursed for the travel and
other expenses that they incur in attending Board meetings.
- Upon retirement, the independent Directors/Trustees receive an
aggregate annual fee of $1,000 for each year served on the Board, up to
fifteen years of service. This annual fee is paid for ten years following
retirement, or until the Director's/Trustee's death.
21
<PAGE> 27
"INTERESTED" DIRECTORS/TRUSTEES. The Funds' interested
Directors/Trustees -- Messrs. Bogle and Brennan -- receive no compensation for
their service in that capacity. However, they are paid in their role as officers
of the Funds.
COMPENSATION TABLES. The following tables provide compensation details for
each of the Directors/Trustees. For each Fund covered in this proxy statement,
we list the amounts paid as compensation and accrued as retirement benefits by
that Fund for each Director/Trustee. In addition, the last table shows the total
amount of benefits that we expect each Director/Trustee to receive from all
Vanguard Funds upon retirement, and the total amount of compensation paid to
each Director/Trustee by all Vanguard Funds. All information shown in this
section relates to each Fund's most recent fiscal year.
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND EQUITY INCOME FUND
DIRECTORS/ AGGREGATE ACCRUED PENSION/ AGGREGATE ACCRUED PENSION/
TRUSTEES COMPENSATION RETIREMENT BENEFITS COMPENSATION RETIREMENT BENEFITS
- - - - - - - --------------- ------------ ------------------- ------------ -------------------
<S> <C> <C> <C> <C>
Bogle None None None None
Brennan None None None None
Cawthorn $807 $ 97 $517 $61
Hauptfuhrer $807 $ 116 $517 $74
MacLaury $861 $ 112 $547 $70
Malkiel $812 $ 78 None None
Rankin $807 $ 61 $517 $39
Sawhill $807 $ 73 $517 $46
Welch $807 $ 90 $517 $57
Wilson $807 $ 65 $517 $41
</TABLE>
<TABLE>
<CAPTION>
GROWTH & INCOME PORTFOLIO
PREFERRED STOCK FUND
DIRECTORS/ AGGREGATE ACCRUED PENSION/ AGGREGATE ACCRUED PENSION/
TRUSTEES COMPENSATION RETIREMENT BENEFITS COMPENSATION RETIREMENT BENEFITS
- - - - - - - --------------- ------------ ------------------- ------------ -------------------
<S> <C> <C> <C> <C>
Bogle None None None None
Brennan None None None None
Cawthorn $429 $52 $ 84 $10
Hauptfuhrer $429 $62 $ 84 $12
MacLaury $455 $58 $ 88 $12
Malkiel $431 $41 $ 85 $ 8
Rankin $429 $33 $ 84 $ 6
Sawhill $429 $39 $ 84 $ 8
Welch $429 $48 $ 84 $ 9
Wilson $429 $34 $ 84 $ 7
</TABLE>
22
<PAGE> 28
<TABLE>
<CAPTION>
WELLESLEY INCOME FUND WELLINGTON FUND
DIRECTORS/ AGGREGATE ACCRUED PENSION/ AGGREGATE ACCRUED PENSION/
TRUSTEES COMPENSATION RETIREMENT BENEFITS COMPENSATION RETIREMENT BENEFITS
- - - - - - - --------------- ------------ ------------------- ------------ -------------------
<S> <C> <C> <C> <C>
Bogle None None None None
Brennan None None None None
Cawthorn $1,940 $ 233 $4,870 $ 585
Hauptfuhrer $1,940 $ 280 $4,870 $ 702
MacLaury $2,068 $ 268 $5,180 $ 672
Malkiel $1,953 $ 188 $4,900 $ 471
Rankin $1,940 $ 147 $4,870 $ 370
Sawhill $1,940 $ 175 $4,870 $ 439
Welch $1,940 $ 215 $4,870 $ 540
Wilson $1,940 $ 155 $4,870 $ 390
</TABLE>
<TABLE>
<CAPTION>
ALL VANGUARD FUNDS(1)
WINDSOR FUNDS TOTAL COMPENSATION
DIRECTORS/ AGGREGATE ACCRUED PENSION/ ESTIMATED ANNUAL/ AS
TRUSTEES COMPENSATION RETIREMENT BENEFITS RETIREMENT BENEFITS DIRECTOR/TRUSTEE
- - - - - - - ------------- ------------ ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Bogle None None None None
Brennan None None None None
Cawthorn $ 9,790 $ 1,177 $13,000 $ 70,000
Hauptfuhrer $ 9,790 $ 1,412 $15,000 $ 70,000
MacLaury $ 10,420 $ 1,348 $12,000 $ 65,000
Malkiel $ 9,852 $ 947 $15,000 $ 70,000
Rankin $ 9,790 $ 743 $15,000 $ 70,000
Sawhill $ 9,790 $ 883 $15,000 $ 70,000
Welch $ 9,790 $ 1,086 $15,000 $ 70,000
Wilson $ 9,790 $ 785 $15,000 $ 70,000
</TABLE>
- - - - - - - ---------------
(1) All Directors/Trustees serve as such for 35 Vanguard Funds, except for
Messrs. Malkiel and MacLaury, who serve on the Boards of 34 and 28 Vanguard
Funds, respectively.
23
<PAGE> 29
[LOGO]
Post Office Box 2600
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E-mail
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(C) 1998 Vanguard Marketing
Corporation, Distributor
PROX1 0198-2.5MB
<PAGE> 30
VOTE BY TOUCH-TONE PHONE OR THE INTERNET
CALL TOLL-FREE: 1-800-###-#### OR VISIT OUR WEBSITE
WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM
12-DIGIT CONTROL NUMBER: 021 345 678 912
(See enclosed insert for further instructions to vote by phone/internet)
[THE VANGUARD GROUP LOGO]
- - - - - - - - Please detach at perforation before mailing -
VANGUARD ASSET ALLOCATION FUND ("FUND")
PROXY SOLICITED BY THE BOARD OF DIRECTORS
By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and
Raymond J. Klapinsky as my attorneys to vote all Fund shares that I am entitled
to vote at the Special Meeting of Shareholders to be held in the Majestic
Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard,
Malvern, PA on May 1, 1998 at 9:30 A.M., E.T. and at any adjournments of the
meeting. Any one or more of Messrs. Brennan, Wilson and Klapinsky may vote my
shares, and they may appoint substitutes to vote my shares on their behalf. I
instruct Messrs. Brennan, Wilson and Klapinsky to vote this proxy as specified
on the reverse side, and I revoke any previous proxies that I have executed. I
acknowledge receipt of the Fund's Notice of Special Meeting of Shareholders and
proxy statement.
PLEASE SIGN, DATE AND RETURN PROMPTLY
IN ENCLOSED ENVELOPE IF YOU ARE NOT
VOTING BY PHONE OR INTERNET
Date
---------------------
NOTE: Please sign exactly as your name appears on this proxy. When signing in
a fiduciary capacity, such as executor, administrator, trustee, attorney,
guardian, etc., please so indicate. Corporate and partnership proxies should
be signed by an authorized person indicating the person's title.
- - - - - - - -----------------------------------------------------------
- - - - - - - -----------------------------------------------------------
Signature (s) (and Title(s), if applicable) VAN-REG
CONTINUED ON REVERSE SIDE
<PAGE> 31
Please refer to the Proxy Statement discussion of these proposals.
THE PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE.
---
Your appointed attorneys will vote any other matters that arise at the meeting
in accordance with their best judgment.
THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING:
---
- Please detach at perforation before mailing -
PLEASE VOTE BY CHECKING THE APPROPRIATE BOX(ES) BELOW.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. To reorganize the Fund into a Delaware business trust. (All Funds) [ ] [ ] [ ] 1.
2. To change the Fund's fundamental investment limitations with regards to:
(a) The interfund lending program. (All Funds) [ ] [ ] [ ] 2a.
(b) Borrowing money and pledging assets (All Funds but Preferred Stock Fund) [ ] [ ] [ ] 2b.
(c) Investments in securities owned by affiliates. (Wellesley Income Fund, [ ] [ ] [ ] 2c.
Windsor Fund, and Windsor II only)
(d) Investments in assessable securities. (Windsor Fund and Windsor II, only) [ ] [ ] [ ] 2d.
(e) Industry concentration. (Preferred Stock Fund, only) [ ] [ ] [ ] 2e.
</TABLE>
PLEASE SIGN ON REVERSE SIDE VAN-REG
<PAGE> 32
VOTE BY TOUCH-TONE PHONE OR THE INTERNET
CALL TOLL-FREE: 1-800-###-#### OR VISIT OUR WEBSITE
WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM
12-DIGIT CONTROL NUMBER: 021 345 678 912
(See enclosed insert for further instructions to vote by phone/internet)
[THE VANGUARD GROUP LOGO]
- - - - - - - - Please detach at perforation before mailing -
VANGUARD EQUITY INCOME FUND ("FUND")
PROXY SOLICITED BY THE BOARD OF DIRECTORS
By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and
Raymond J. Klapinsky as my attorneys to vote all Fund shares that I am entitled
to vote at the Special Meeting of Shareholders to be held in the Majestic
Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard,
Malvern, PA on May 1, 1998 at 9:30 A.M., E.T. and at any adjournments of the
meeting. Any one or more of Messrs. Brennan, Wilson and Klapinsky may vote my
shares, and they may appoint substitutes to vote my shares on their behalf. I
instruct Messrs. Brennan, Wilson and Klapinsky to vote this proxy as specified
on the reverse side, and I revoke any previous proxies that I have executed. I
acknowledge receipt of the Fund's Notice of Special Meeting of Shareholders and
proxy statement.
PLEASE SIGN, DATE AND RETURN PROMPTLY
IN ENCLOSED ENVELOPE IF YOU ARE NOT
VOTING BY PHONE OR INTERNET
Date
---------------------
NOTE: Please sign exactly as your name appears on this proxy. When signing in
a fiduciary capacity, such as executor, administrator, trustee, attorney,
guardian, etc., please so indicate. Corporate and partnership proxies should
be signed by an authorized person indicating the person's title.
- - - - - - - -----------------------------------------------------------
- - - - - - - -----------------------------------------------------------
Signature (s) (and Title(s), if applicable) VAN-REG
CONTINUED ON REVERSE SIDE
<PAGE> 33
Please refer to the Proxy Statement discussion of these proposals.
THE PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE.
---
Your appointed attorneys will vote any other matters that arise at the meeting
in accordance with their best judgment.
THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING:
---
- Please detach at perforation before mailing -
PLEASE VOTE BY CHECKING THE APPROPRIATE BOX(ES) BELOW.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. To reorganize the Fund into a Delaware business trust. (All Funds) [ ] [ ] [ ] 1.
2. To change the Fund's fundamental investment limitations with regards to:
(a) The interfund lending program. (All Funds) [ ] [ ] [ ] 2a.
(b) Borrowing money and pledging assets (All Funds but Preferred Stock Fund) [ ] [ ] [ ] 2b.
(c) Investments in securities owned by affiliates. (Wellesley Income Fund, [ ] [ ] [ ] 2c.
Windsor Fund, and Windsor II only)
(d) Investments in assessable securities. (Windsor Fund and Windsor II, only) [ ] [ ] [ ] 2d.
(e) Industry concentration. (Preferred Stock Fund, only) [ ] [ ] [ ] 2e.
</TABLE>
PLEASE SIGN ON REVERSE SIDE VAN-REG
<PAGE> 34
VOTE BY TOUCH-TONE PHONE OR THE INTERNET
CALL TOLL-FREE: 1-800-###-#### OR VISIT OUR WEBSITE
WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM
12-DIGIT CONTROL NUMBER: 021 345 678 912
(See enclosed insert for further instructions to vote by phone/internet)
[THE VANGUARD GROUP LOGO]
- - - - - - - - Please detach at perforation before mailing -
VANGUARD GROWTH AND INCOME PORTFOLIO ("FUND")
PROXY SOLICITED BY THE BOARD OF DIRECTORS
By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and
Raymond J. Klapinsky as my attorneys to vote all Fund shares that I am entitled
to vote at the Special Meeting of Shareholders to be held in the Majestic
Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard,
Malvern, PA on May 1, 1998 at 9:30 A.M., E.T. and at any adjournments of the
meeting. Any one or more of Messrs. Brennan, Wilson and Klapinsky may vote my
shares, and they may appoint substitutes to vote my shares on their behalf. I
instruct Messrs. Brennan, Wilson and Klapinsky to vote this proxy as specified
on the reverse side, and I revoke any previous proxies that I have executed. I
acknowledge receipt of the Fund's Notice of Special Meeting of Shareholders and
proxy statement.
PLEASE SIGN, DATE AND RETURN PROMPTLY
IN ENCLOSED ENVELOPE IF YOU ARE NOT
VOTING BY PHONE OR INTERNET
Date
---------------------
NOTE: Please sign exactly as your name appears on this proxy. When signing in
a fiduciary capacity, such as executor, administrator, trustee, attorney,
guardian, etc., please so indicate. Corporate and partnership proxies should
be signed by an authorized person indicating the person's title.
- - - - - - - -----------------------------------------------------------
- - - - - - - -----------------------------------------------------------
Signature (s) (and Title(s), if applicable) VAN-REG
CONTINUED ON REVERSE SIDE
<PAGE> 35
Please refer to the Proxy Statement discussion of these proposals.
THE PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE.
---
Your appointed attorneys will vote any other matters that arise at the meeting
in accordance with their best judgment.
THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING:
---
- Please detach at perforation before mailing -
PLEASE VOTE BY CHECKING THE APPROPRIATE BOX(ES) BELOW.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. To reorganize the Fund into a Delaware business trust. (All Funds) [ ] [ ] [ ] 1.
2. To change the Fund's fundamental investment limitations with regards to:
(a) The interfund lending program. (All Funds) [ ] [ ] [ ] 2a.
(b) Borrowing money and pledging assets (All Funds but Preferred Stock Fund) [ ] [ ] [ ] 2b.
(c) Investments in securities owned by affiliates. (Wellesley Income Fund, [ ] [ ] [ ] 2c.
Windsor Fund, and Windsor II only)
(d) Investments in assessable securities. (Windsor Fund and Windsor II, only) [ ] [ ] [ ] 2d.
(e) Industry concentration. (Preferred Stock Fund, only) [ ] [ ] [ ] 2e.
</TABLE>
PLEASE SIGN ON REVERSE SIDE VAN-REG
<PAGE> 36
VOTE BY TOUCH-TONE PHONE OR THE INTERNET
CALL TOLL-FREE: 1-800-###-#### OR VISIT OUR WEBSITE
WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM
12-DIGIT CONTROL NUMBER: 021 345 678 912
(See enclosed insert for further instructions to vote by phone/internet)
[THE VANGUARD GROUP LOGO]
- - - - - - - - Please detach at perforation before mailing -
VANGUARD PREFERRED STOCK FUND ("FUND")
PROXY SOLICITED BY THE BOARD OF TRUSTEES
By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and
Raymond J. Klapinsky as my attorneys to vote all Fund shares that I am entitled
to vote at the Special Meeting of Shareholders to be held in the Majestic
Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard,
Malvern, PA on May 1, 1998 at 9:30 A.M., E.T. and at any adjournments of the
meeting. Any one or more of Messrs. Brennan, Wilson and Klapinsky may vote my
shares, and they may appoint substitutes to vote my shares on their behalf. I
instruct Messrs. Brennan, Wilson and Klapinsky to vote this proxy as specified
on the reverse side, and I revoke any previous proxies that I have executed. I
acknowledge receipt of the Fund's Notice of Special Meeting of Shareholders and
proxy statement.
PLEASE SIGN, DATE AND RETURN PROMPTLY
IN ENCLOSED ENVELOPE IF YOU ARE NOT
VOTING BY PHONE OR INTERNET
Date
---------------------
NOTE: Please sign exactly as your name appears on this proxy. When signing in
a fiduciary capacity, such as executor, administrator, trustee, attorney,
guardian, etc., please so indicate. Corporate and partnership proxies should
be signed by an authorized person indicating the person's title.
- - - - - - - -----------------------------------------------------------
- - - - - - - -----------------------------------------------------------
Signature (s) (and Title(s), if applicable) VAN-REG
CONTINUED ON REVERSE SIDE
<PAGE> 37
Please refer to the Proxy Statement discussion of these proposals.
THE PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE.
---
Your appointed attorneys will vote any other matters that arise at the meeting
in accordance with their best judgment.
THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING:
---
- Please detach at perforation before mailing -
PLEASE VOTE BY CHECKING THE APPROPRIATE BOX(ES) BELOW.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. To reorganize the Fund into a Delaware business trust. (All Funds) [ ] [ ] [ ] 1.
2. To change the Fund's fundamental investment limitations with regards to:
(a) The interfund lending program. (All Funds) [ ] [ ] [ ] 2a.
(b) Borrowing money and pledging assets (All Funds but Preferred Stock Fund) [ ] [ ] [ ] 2b.
(c) Investments in securities owned by affiliates. (Wellesley Income Fund, [ ] [ ] [ ] 2c.
Windsor Fund, and Windsor II only)
(d) Investments in assessable securities. (Windsor Fund and Windsor II, only) [ ] [ ] [ ] 2d.
(e) Industry concentration. (Preferred Stock Fund, only) [ ] [ ] [ ] 2e.
</TABLE>
PLEASE SIGN ON REVERSE SIDE VAN-REG
<PAGE> 38
VOTE BY TOUCH-TONE PHONE OR THE INTERNET
CALL TOLL-FREE: 1-800-###-#### OR VISIT OUR WEBSITE
WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM
12-DIGIT CONTROL NUMBER: 021 345 678 912
(See enclosed insert for further instructions to vote by phone/internet)
[THE VANGUARD GROUP LOGO]
- - - - - - - - Please detach at perforation before mailing -
VANGUARD WELLESLEY INCOME FUND ("FUND")
PROXY SOLICITED BY THE BOARD OF DIRECTORS
By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and
Raymond J. Klapinsky as my attorneys to vote all Fund shares that I am entitled
to vote at the Special Meeting of Shareholders to be held in the Majestic
Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard,
Malvern, PA on May 1, 1998 at 9:30 A.M., E.T. and at any adjournments of the
meeting. Any one or more of Messrs. Brennan, Wilson and Klapinsky may vote my
shares, and they may appoint substitutes to vote my shares on their behalf. I
instruct Messrs. Brennan, Wilson and Klapinsky to vote this proxy as specified
on the reverse side, and I revoke any previous proxies that I have executed. I
acknowledge receipt of the Fund's Notice of Special Meeting of Shareholders and
proxy statement.
PLEASE SIGN, DATE AND RETURN PROMPTLY
IN ENCLOSED ENVELOPE IF YOU ARE NOT
VOTING BY PHONE OR INTERNET
Date
---------------------
NOTE: Please sign exactly as your name appears on this proxy. When signing in
a fiduciary capacity, such as executor, administrator, trustee, attorney,
guardian, etc., please so indicate. Corporate and partnership proxies should
be signed by an authorized person indicating the person's title.
- - - - - - - -----------------------------------------------------------
- - - - - - - -----------------------------------------------------------
Signature (s) (and Title(s), if applicable) VAN-REG
CONTINUED ON REVERSE SIDE
<PAGE> 39
Please refer to the Proxy Statement discussion of these proposals.
THE PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE.
---
Your appointed attorneys will vote any other matters that arise at the meeting
in accordance with their best judgment.
THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING:
---
- Please detach at perforation before mailing -
PLEASE VOTE BY CHECKING THE APPROPRIATE BOX(ES) BELOW.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. To reorganize the Fund into a Delaware business trust. (All Funds) [ ] [ ] [ ] 1.
2. To change the Fund's fundamental investment limitations with regards to:
(a) The interfund lending program. (All Funds) [ ] [ ] [ ] 2a.
(b) Borrowing money and pledging assets (All Funds but Preferred Stock Fund) [ ] [ ] [ ] 2b.
(c) Investments in securities owned by affiliates. (Wellesley Income Fund, [ ] [ ] [ ] 2c.
Windsor Fund, and Windsor II only)
(d) Investments in assessable securities. (Windsor Fund and Windsor II, only) [ ] [ ] [ ] 2d.
(e) Industry concentration. (Preferred Stock Fund, only) [ ] [ ] [ ] 2e.
</TABLE>
PLEASE SIGN ON REVERSE SIDE VAN-REG
<PAGE> 40
VOTE BY TOUCH-TONE PHONE OR THE INTERNET
CALL TOLL-FREE: 1-800-###-#### OR VISIT OUR WEBSITE
WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM
12-DIGIT CONTROL NUMBER: 021 345 678 912
(See enclosed insert for further instructions to vote by phone/internet)
[THE VANGUARD GROUP LOGO]
- - - - - - - - Please detach at perforation before mailing -
VANGUARD WELLINGTON FUND ("FUND")
PROXY SOLICITED BY THE BOARD OF DIRECTORS
By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and
Raymond J. Klapinsky as my attorneys to vote all Fund shares that I am entitled
to vote at the Special Meeting of Shareholders to be held in the Majestic
Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard,
Malvern, PA on May 1, 1998 at 9:30 A.M., E.T. and at any adjournments of the
meeting. Any one or more of Messrs. Brennan, Wilson and Klapinsky may vote my
shares, and they may appoint substitutes to vote my shares on their behalf. I
instruct Messrs. Brennan, Wilson and Klapinsky to vote this proxy as specified
on the reverse side, and I revoke any previous proxies that I have executed. I
acknowledge receipt of the Fund's Notice of Special Meeting of Shareholders and
proxy statement.
PLEASE SIGN, DATE AND RETURN PROMPTLY
IN ENCLOSED ENVELOPE IF YOU ARE NOT
VOTING BY PHONE OR INTERNET
Date
---------------------
NOTE: Please sign exactly as your name appears on this proxy. When signing in
a fiduciary capacity, such as executor, administrator, trustee, attorney,
guardian, etc., please so indicate. Corporate and partnership proxies should
be signed by an authorized person indicating the person's title.
- - - - - - - -----------------------------------------------------------
- - - - - - - -----------------------------------------------------------
Signature (s) (and Title(s), if applicable) VAN-REG
CONTINUED ON REVERSE SIDE
<PAGE> 41
Please refer to the Proxy Statement discussion of these proposals.
THE PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE.
---
Your appointed attorneys will vote any other matters that arise at the meeting
in accordance with their best judgment.
THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING:
---
- Please detach at perforation before mailing -
PLEASE VOTE BY CHECKING THE APPROPRIATE BOX(ES) BELOW.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. To reorganize the Fund into a Delaware business trust. (All Funds) [ ] [ ] [ ] 1.
2. To change the Fund's fundamental investment limitations with regards to:
(a) The interfund lending program. (All Funds) [ ] [ ] [ ] 2a.
(b) Borrowing money and pledging assets (All Funds but Preferred Stock Fund) [ ] [ ] [ ] 2b.
(c) Investments in securities owned by affiliates. (Wellesley Income Fund, [ ] [ ] [ ] 2c.
Windsor Fund, and Windsor II only)
(d) Investments in assessable securities. (Windsor Fund and Windsor II, only) [ ] [ ] [ ] 2d.
(e) Industry concentration. (Preferred Stock Fund, only) [ ] [ ] [ ] 2e.
</TABLE>
PLEASE SIGN ON REVERSE SIDE VAN-REG
<PAGE> 42
VOTE BY TOUCH-TONE PHONE OR THE INTERNET
CALL TOLL-FREE: 1-800-###-#### OR VISIT OUR WEBSITE
WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM
12-DIGIT CONTROL NUMBER: 021 345 678 912
(See enclosed insert for further instructions to vote by phone/internet)
[THE VANGUARD GROUP LOGO]
- - - - - - - - Please detach at perforation before mailing -
VANGUARD WINDSOR FUND ("FUND")
PROXY SOLICITED BY THE BOARD OF DIRECTORS
By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and
Raymond J. Klapinsky as my attorneys to vote all Fund shares that I am entitled
to vote at the Special Meeting of Shareholders to be held in the Majestic
Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard,
Malvern, PA on May 1, 1998 at 9:30 A.M., E.T. and at any adjournments of the
meeting. Any one or more of Messrs. Brennan, Wilson and Klapinsky may vote my
shares, and they may appoint substitutes to vote my shares on their behalf. I
instruct Messrs. Brennan, Wilson and Klapinsky to vote this proxy as specified
on the reverse side, and I revoke any previous proxies that I have executed. I
acknowledge receipt of the Fund's Notice of Special Meeting of Shareholders and
proxy statement.
PLEASE SIGN, DATE AND RETURN PROMPTLY
IN ENCLOSED ENVELOPE IF YOU ARE NOT
VOTING BY PHONE OR INTERNET
Date
---------------------
NOTE: Please sign exactly as your name appears on this proxy. When signing in
a fiduciary capacity, such as executor, administrator, trustee, attorney,
guardian, etc., please so indicate. Corporate and partnership proxies should
be signed by an authorized person indicating the person's title.
- - - - - - - -----------------------------------------------------------
- - - - - - - -----------------------------------------------------------
Signature (s) (and Title(s), if applicable) VAN-REG
CONTINUED ON REVERSE SIDE
<PAGE> 43
Please refer to the Proxy Statement discussion of these proposals.
THE PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE.
---
Your appointed attorneys will vote any other matters that arise at the meeting
in accordance with their best judgment.
THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING:
---
- Please detach at perforation before mailing -
PLEASE VOTE BY CHECKING THE APPROPRIATE BOX(ES) BELOW.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. To reorganize the Fund into a Delaware business trust. (All Funds) [ ] [ ] [ ] 1.
2. To change the Fund's fundamental investment limitations with regards to:
(a) The interfund lending program. (All Funds) [ ] [ ] [ ] 2a.
(b) Borrowing money and pledging assets (All Funds but Preferred Stock Fund) [ ] [ ] [ ] 2b.
(c) Investments in securities owned by affiliates. (Wellesley Income Fund, [ ] [ ] [ ] 2c.
Windsor Fund, and Windsor II only)
(d) Investments in assessable securities. (Windsor Fund and Windsor II, only) [ ] [ ] [ ] 2d.
(e) Industry concentration. (Preferred Stock Fund, only) [ ] [ ] [ ] 2e.
</TABLE>
PLEASE SIGN ON REVERSE SIDE VAN-REG
<PAGE> 44
VOTE BY TOUCH-TONE PHONE OR THE INTERNET
CALL TOLL-FREE: 1-800-###-#### OR VISIT OUR WEBSITE
WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM
12-DIGIT CONTROL NUMBER: 021 345 678 912
(See enclosed insert for further instructions to vote by phone/internet)
[THE VANGUARD GROUP LOGO]
- - - - - - - - Please detach at perforation before mailing -
VANGUARD WINDSOR II ("FUND")
PROXY SOLICITED BY THE BOARD OF DIRECTORS
By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and
Raymond J. Klapinsky as my attorneys to vote all Fund shares that I am entitled
to vote at the Special Meeting of Shareholders to be held in the Majestic
Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard,
Malvern, PA on May 1, 1998 at 9:30 A.M., E.T. and at any adjournments of the
meeting. Any one or more of Messrs. Brennan, Wilson and Klapinsky may vote my
shares, and they may appoint substitutes to vote my shares on their behalf. I
instruct Messrs. Brennan, Wilson and Klapinsky to vote this proxy as specified
on the reverse side, and I revoke any previous proxies that I have executed. I
acknowledge receipt of the Fund's Notice of Special Meeting of Shareholders and
proxy statement.
PLEASE SIGN, DATE AND RETURN PROMPTLY
IN ENCLOSED ENVELOPE IF YOU ARE NOT
VOTING BY PHONE OR INTERNET
Date
---------------------
NOTE: Please sign exactly as your name appears on this proxy. When signing in
a fiduciary capacity, such as executor, administrator, trustee, attorney,
guardian, etc., please so indicate. Corporate and partnership proxies should
be signed by an authorized person indicating the person's title.
- - - - - - - -----------------------------------------------------------
- - - - - - - -----------------------------------------------------------
Signature (s) (and Title(s), if applicable) VAN-REG
CONTINUED ON REVERSE SIDE
<PAGE> 45
Please refer to the Proxy Statement discussion of these proposals.
THE PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE.
---
Your appointed attorneys will vote any other matters that arise at the meeting
in accordance with their best judgment.
THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING:
---
- Please detach at perforation before mailing -
PLEASE VOTE BY CHECKING THE APPROPRIATE BOX(ES) BELOW.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. To reorganize the Fund into a Delaware business trust. (All Funds) [ ] [ ] [ ] 1.
2. To change the Fund's fundamental investment limitations with regards to:
(a) The interfund lending program. (All Funds) [ ] [ ] [ ] 2a.
(b) Borrowing money and pledging assets (All Funds but Preferred Stock Fund) [ ] [ ] [ ] 2b.
(c) Investments in securities owned by affiliates. (Wellesley Income Fund, [ ] [ ] [ ] 2c.
Windsor Fund, and Windsor II only)
(d) Investments in assessable securities. (Windsor Fund and Windsor II, only) [ ] [ ] [ ] 2d.
(e) Industry concentration. (Preferred Stock Fund, only) [ ] [ ] [ ] 2e.
</TABLE>
PLEASE SIGN ON REVERSE SIDE VAN-REG
<PAGE> 46
Two New Low-Cost Ways
To Vote Your proxy
IT'S FAST AND CONVENIENT.
SAVE $!
The accompanying Proxy Statement outlines important issues affecting your
Vanguard fund. Help us save time and postage costs -- savings we pass along to
you -- by voting through the Internet or by telephone. Each method is generally
available 24 hours a day and will ensure that your vote is confirmed and posted
immediately.
Do not mail the Voting Instruction Form if you are voting by Internet or
telephone.
SAVE TIME !
TO VOTE BY INTERNET:
1. Read the Proxy Statement and have your Voting Instruction Form at hand.
2. Go to website WWW.PROXYVOTE.COM or to the "Proxy Voting" link on
WWW.VANGUARD.COM.
3. Enter the 12-digit CONTROL NUMBER found on your Voting Instruction Form.
4. Follow the simple instructions.
TO VOTE BY TELEPHONE:
1. Read the Proxy Statement and have your Voting Instruction Form at hand.
2. Call the toll-free number on your Voting Instruction Form.
3. Enter the 12-digit CONTROL NUMBER found on your Voting Instruction Form.
4. Follow the simple recorded instructions.
YOUR PROXY VOTE
IS IMPORTANT!
[VANGUARD LOGO]
(C) 1998 Vanguard Marketing Corporation, Distributor
<PAGE> 47
Two New Low-Cost Ways
To Vote Your proxy
IT'S FAST AND CONVENIENT.
SAVE $!
The accompanying Proxy Statement outlines important issues affecting your
Vanguard fund. Help us save time and postage costs -- savings we pass along to
you -- by voting through the Internet or by telephone. Each method is generally
available 24 hours a day and will ensure that your vote is confirmed and posted
immediately.
Do not mail the Proxy Card if you are voting by Internet or telephone.
SAVE TIME!
TO VOTE BY INTERNET:
1. Read the Proxy Statement and have your Proxy Card at hand.
2. Go to website WWW.PROXYVOTE.COM or to the "Proxy Voting" link on
WWW.VANGUARD.COM.
3. Enter the 12-digit CONTROL NUMBER found on your Proxy Card.
4. Follow the simple instructions.
TO VOTE BY TELEPHONE:
1. Read the Proxy Statement and have your Proxy Card at hand.
2. Call toll-free 1-800-690-6903.
3. Enter the 12-digit CONTROL NUMBER found on your Proxy Card.
4. Follow the simple recorded instructions.
YOUR PROXY VOTE
IS IMPORTANT!
[VANGUARD LOGO]
(C) 1998 Vanguard Marketing Corporation, Distributor
